Sunday October 20, 2019

CHINA SIGNED $85 BILLION OIL DEAL WITH RUSSIA

October 25, 2013

As Russian Prime Minister Dmitry Medvedev announced on October 22, China and Russia signed a bundle of agreements on oil imports during Medvedev’s visit to Beijing. According this deal, Russia will increase its oil supply to China by 10 million tons per year.

Medvedev also said Rosneft, the biggest oil producer in Russia, will supply China’s Sinopec Group an additional 70 million barrels of crude annually for 10 years and the total value of the deal amounts to $85 billion. The pre-paid deal will start in 2014, with Sinopec paying Rosneft between 25 percent and 30 percent of total cost in advance.

China’s economic growth has slowed down. Meanwhile, Chinese renewable energy sector, in which China invested $67.7 billion last year, is suffering dramatic loss from high tariffs imposed by the U.S. and EU this year. But China’s oil demand is still expanding, causing concerns about energy security.

In September 2013, China surpassed the U.S. and became the largest net oil importer in the world. According to the Energy Information Administration (EIA), Chinese oil consumption exceeds production by 6.3 million barrels per day. China filled this gap mainly by importing from African countries and Middle East oil exporters. According to Wood Mackenzie, a leading consulting agency in energy, China’s daily import of crude will increase to 9.2 million barrels in 2020, accounting for 70 percent of total Chinese oil consumption.

Heavy reliance on oil import drives China to diversify its energy sources.  For example, China has completed a 2,520 kilometer pipe to deliver natural gas and oil from the Indian Ocean across Myanmar. Moreover, China also signed an agreement with Kazakhstan to transport natural gas via a 2,228 kilometers pipeline in December 2012.

China is also eager to expand its energy business with Russia as Russia’s rich oil and natural gas resources are attractive for China. In 2012, China imported 24 million tons of crude oil from Russia and the two countries agreed to make a breakthrough in natural gas delivery by the end of this year. Furthermore, Sino-Russia political relations have become tighter because of Obama’s pivot to Asia. For instance, China and Russia conducted a joint naval exercise in July 2013. Moreover, Putin and Xi together stressed Beijing-Moscow ties at this year’s APEC meeting.  This creates a favorable policy environment for more bilateral trade in energy.

For Russia, it is also an opportunity to reduce its reliance on European market.  Major Russian oil producers are trying to expand their business with Chinese. As Reuters comments, the agreements announced by Medvedev has brought Igor Sechin, chief executive of state oil major Rosneft, closer to his goal of exporting more than 1 million barrels per day (bpd) of oil to China.

For more information on the Sino-Russia oil deal, please see the following news sources:

Reuters“Russia grabs China oil and gas export deals”

ABC News“Medvedev: China, Russia Agree to Oil Supply Deal”

DW“Russia and China sign landmark oil deal”

USCPF“China Overtakes U.S. As World’s Largest Oil Importer”

China Daily“China’s legislators support renewable energy”

For Chinese-Language commentary on the Sino-Russia oil deal, please see the following news sources:

People’s Daily (人民网)“梅德韦杰夫:中俄签署协议每年对中国增供1000万吨原油”

Global Times (环球网)- “中缅天然气管道开始向中国通气”

Sina (新浪)“ 中国哈萨克斯坦矿产油气开发项目签约”

Complied and Edited by Jingyan Chen